Before you start reading this blog, I’m warning you that it does not contain typical financial advice. After all, at this time of year personal finance writers and bloggers wax lyrical about all of the important things you should do with your income tax return, like reduce debt; contribute to your RRSP, TFSA or your kids RESP; or pay down your mortgage. I know. I’ve already written that article.
According to Tim Cestnick at the Globe and Mail, CRA pegs the average Canadian tax refund is about $1,400. I agree with him that if you receive a $1,400 tax refund each year for 25 years and invest that refund at 8% (which may appear on the high side but is realistic over a 25-year time horizon), you’d have $102,348 at the end of that time.
But what if once, just once, you blow it all on one or more items on your personal wish list? Maybe the memories you buy with that windfall will ultimately turn out to be an excellent investment or satisfy a greater need than a few extra dollars in the bank when you retire.
So continuing on this heretical tangent, here are some ideas to think about.
Take a vacation: Whether renting a cottage for a week with the family or jetting off to Disneyland, you will be buying the gift of time with your loved ones and a break from workplace stress.
Replace energy-inefficient appliance: Investing in a new washing machine can save you $415 dollars over the 11 year life of the appliance. Throw in a clothes dryer and energy savings will amount to another $160. And if you don’t have to go to the laundromat and pay a repairman every time one of these appliances conks out, you’ll save time and time is money.
Home repairs: You need a new roof. Or, you’ve been meaning to upgrade your kitchen and bathroom. Investing your tax return in your home will increase your enjoyment and it may enhance the value of the property.
Hire household help: Divorces are expensive. We have been married for 41 years and I intend to stay that way. I attribute my stable marriage in part to a regular cleaning lady. My husband and I both hate cleaning and I hate clutter. Bringing in a pro is one of the best investments we ever made.
Get a pet: We have gone from a sheltie to two Nova Scotia Duck Tolling Retrievers to a tiny cockapoo in the course of our marriage. They get us off the couch and walking which is good for our health. And there isn’t a day that goes by when they don’t make us laugh. Our succession of cats has been more sedentary but they were always good for a therapeutic cuddle.
Seek financial advice: A financial plan is a road map for life and retirement. You get what you pay for. Invest your tax return in a consultation with a well-reputed independent financial advisor who can help you develop a strategy and a timeline to reach your goals.
Support sports or the arts: Join the museum or the art gallery. Get seasons tickets for a theatre company. Take your kids to a rock concert or a football game. Learning is not only done in school and bonding with your family while you cheer for your favourite team can’t be beat.
Pamper yourself: Depending on the size of your return, spend it on you. Get a new haircut. Have a spa day. Buy a new outfit. With your updated look you will have the confidence to face another day at work or maybe even look for a new, better-paying job.
You get the idea. By all means pay off your student loan, save for the down payment on a house and get rid of credit card debt. But every now and then if you can afford it, spend your tax return on yourself and your family. After all, you’ve earned it.
Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.
So I decided to ask 10 money writers to share their top personal finance New Year’s resolution with me, in the hope that it will encourage readers to establish and meet their own lofty goals in 2017.
Here, in alphabetical order, is what they told me:
Jordann Brown: My Alternate Life
I’m still in the process of ironing out my New Year’s resolutions but here is one I’m definitely going to stick to. I plan to save $10,000 towards replacing my vehicle. It’s always been a dream of mine to buy a car with cash and as my car ages it has become apparent that I need to start focusing on this goal. I never want to have a car payment again, and that means I need to start saving today!
Sean Cooper: Sean Cooper Writer
I paid off my mortgage in just three years by age 30. My top personal finance New Year’s resolution is to ensure that my upcoming book, Burn Your Mortgage, reaches best-seller status. A lot of millennials feel like home ownership is out of reach. After reading my book, I want to them to believe buying a home is still achievable.
Jonathan Chevreau Financial Independence Hub
My top New Year’s Resolution, financially speaking, is to make a 2017 contribution to our family’s Tax-free Savings Accounts (TFSAs). This can be done January 1st, even if you have little cash. Assuming you do have some non-registered investments that are roughly close to their book value, these can be transferred “in kind”, effectively transforming taxable investments into tax-free investments.
Tom Drake Canadian Finance Blog
My New Year’s resolution for 2017 is to increase my income through my home business. But this can be done rather easily by anyone through side-gigs and part-time jobs. While saving money by cutting expenses can be helpful, you’ll hit limits on how much you can cut. However, if you aim to find new sources of income in 2017, the possible earnings are limitless!
Jessica Moorhouse Jessica Moorhouse.com
My personal finance New Year’s resolution is to track my spending, collecting every receipt and noting every transaction down, for at least 3 months. Doing this really helps me stay on track financially, but for me it’s definitely something that’s easier said than done!
Sandi Martin Spring Personal Finance
I don’t expect much to change in our financial lives over the next year. I hope to avoid the temptation to build a new system because the boring old things we’re already doing aren’t dramatic enough. I’m prone to thinking that “doing something” is the same as “achieving something”, and I’m going to keep fighting that tendency as 2017 rolls by.
Ellen Roseman Toronto Star Consumer Columnist
My personal finance resolution for 2017 is to organize my paperwork, shred what I don’t need and file the rest. I also want to list the financial service suppliers I deal with, so that someone else can step into my shoes if I’m not around. It’s something I want to do every year, but now I finally have the time and motivation to tackle it.
Mark Seed My Own Advisor
I actually have three New Year’s resolutions to share:
Eat healthier. We know our health is our most important asset.
Continue to save at least 20% of our net income. We know a high savings rate is our key to financial health.
After paying ourselves first, simply enjoy the money that is leftover. Life is for the living.
Stephen Weyman HowToSaveMoney.ca
For 2017 I’m looking to really “settle down” and put down roots in a community. I believe this will have all kinds of family, health, and financial benefits. The time savings alone from being able to better develop daily routines will allow me to free up time to focus more on saving money, growing my business, and better preparing for a sound financial future.
Allen Whitton Canadian Personal Finance Blog
I resolve to keep a much closer tab on my investments and my expenses, while planning to retire in four years. I have a pension, I have RRSPs, but I still have too large a debt load. Not sure this is possible, but I will try!”
Today I am interviewing Tim Cestnick, Managing Director of Advanced Wealth Planning at Scotia Wealth Management for savewithspp.com. Tim also writes a personal finance column called, “Tax Matters” that has appeared every Thursday for almost twenty years in Canada’s national newspaper, The Globe & Mail. We’re going to talk about some of the things you need to know to complete and file your income tax return.
Welcome Tim and thanks for joining me today.
Q: What are some of the tax credits or deductions that many people aren’t aware of or that they may miss?
A: There are so many kinds of tax credits now. It’s important to really check to make sure you’re not missing something that you haven’t claimed in the past that is now available. Some of the things we see people missing are for example, interest deductions. Interest is deductible where you borrow the money for the purpose of earning income from a business or from an investment.
Also, I think fitness tax credits and tax credits for children are another area that people sometimes overlook. Don’t forget if you’ve paid for any kind of sports activities for your kids or even artistic classes like music or piano lessons, you can claim a tax credit for these amounts.
The amounts have actually been increased for fitness tax credits. You can claim up to a thousand dollars of eligible activities. It would get you pretty decent tax relief, probably two hundred and fifty dollars in tax relief federally plus maybe in total about four hundred dollars in tax relief from local and federal governments together, so it’s worth claiming those credits.
People also sometimes forget about the education and textbooks tax credits. But based on the March 2016 budget this will be the last year for many of these tax credits.
Q: Are receipts required in all cases?
A: Yes, you do need receipts. You don’t have to turn them in with your tax return when you file electronically, but you have to keep them on file.
Q: Why should tax returns be filed for children, even if they don’t have any taxable income?
A: There are a couple of reasons why it might make sense to file a return for a child, even a minor child. Some people don’t even realize you can do this. If your child has earned any type of income at all from babysitting, or cutting grass, or delivering papers, report that income on a tax return because they’re not going to pay tax anyway if their total income is under $11,400 for 2015. However, they will create RRSP contribution room for later when they graduate and are working full-time.
Also, once your child reaches age 19 there’s good reason to file even if they have no income because they will be entitled a GST or HST credit which results in cash back to them of almost $300.
Q: If taxpayers own stock in an unregistered portfolio, what are the advantages of making a charitable donation using stock instead of selling the shares and donating cash?
A: You’ll be better off donating securities that have appreciated in value than donating cash. You get a full donation tax credit for the value of the shares you are donating and on top of that, the government eliminates the capital gains tax on the securities.
Q: What is the advantage to taxpayers of filing electronically instead of submitting paper forms?
A: There are a couple of reasons why you might want to do this. First of all, if you’re expecting a refund, you will get it faster by filing your return electronically. They can process it sooner and you will get your money much faster.
Also, it’s just simple to not have to send in all the paperwork. Some tax returns would be two inches thick if taxpayers had to send in all their receipts and what not. It’s just easier and quicker.
Q: Do slips and receipts always have to be sent in with a paper filing?
A: Yes, you do have to send a number of slips and receipts. However, there are things you don’t necessarily have to provide. For example, if you’re an employee and you are claiming a certain employment expenses like use of your car, you don’t have to file a Form T2200 signed by your employer to say you had to pay for those costs. But you have to keep it handy.
Q: Why is it getting a big tax return not necessarily a good thing?
A: A tax refund is not necessarily a good thing because what it really means is that you’ve been lending money to the government over the course of the year and they’re only now going to give it back to you. The perfect scenario is that you file a return and you owe nothing and you receive nothing back. The reality is most people actually owe or get a refund of some kind. You just want to make sure the refund is not too big.
Q: If an individual is reporting self-employment income and wants to deduct expenses, what are a couple of things that they should do to ensure that the expenses are allowed if CRA comes knocking?
A: The first thing is to make sure amounts you’re claiming are allowed. That includes any kind of expenses you have incurred for the purpose of earning income from your business but expenses also have to be reasonable in amount. In most cases, as long as you’re paying a third party for some of these expenses that shouldn’t be an issue.
You also have to make sure that you do keep any receipts or invoices that you paid as part of your expenses just in case CRA asks for them. There was a court decision that was handed down a number of years ago which established that if you don’t have a receipt for something it may still be deductible if you can demonstrate you paid that amount and the cost is reasonable. But it’s just easier if you keep all of your receipts.
Q: What are the penalties if Canadians file their tax returns late?
A: If you don’t owe taxes then there’s no penalty for filing late. Of course you won’t get your refund as soon as you should so it’s nice to file on time. If you owe money and don’t file your return on time, there is a five percent penalty on the tax owing the day after the due date. The key is to make sure you file your tax return on time even if you don’t have the money to pay your taxes immediately. By doing that you’ll avoid any penalties.
Q: If you do file on time and you owe money, when do you have to pay it?
A: The money is owing as of the due date of your tax return. Typically, for most people that would be April 30th. If it’s not paid by that time, you will end up paying some interest on the outstanding tax balance — not a penalty, just interest.
Q: If CRA sends a notice requesting quarterly tax installments is it ever safe to ignore it?
A: You should never exactly ignore it. The reason they send you the statement is because they expect that you probably owe installments for the coming year. What you need to do is to evaluate whether or not the amount they’re asking for is correct.
If you’re receiving a lot of investment income or you are a senior and don’t have employment income, you may end up owing taxes when you file your return. Your best bet is to take a look at your income for the coming year, assess whether or not you think your taxes will be less or more than they were in the past year and actually do the math on your installments. When CRA sends you a statement you don’t have to abide by it, but don’t ignore it because you may actually owe quarterly payments.
Q: So if you think your earnings will be lower, you do not necessarily have to remit the whole amount?
A: There have been situations where people have been asked to pay installments because they had a certain amount of income that was a one-time event. In that case, you may not have to make installments next year at all. You have to know really what your income is going to look like in this coming year compared to where it was last year to be able to make a decision about whether you can ignore a request for installments or pay a smaller amount.
This is an edited transcript of a podcast interview with Tim Cestnick recorded in March 2016.
Saving for retirement is important, but working for 35 years with only a few weeks of vacation a year is a daunting thought for many people. However, some companies allow employees to take one or more extended leaves during their career and in some cases establish income deferral programs to help them finance a career break.
Here are some of the things you need to know about taking a sabbatical in Canada.
In the Globe and Mail, columnist Tim Cestnick offers Tax and other tips for planning a work sabbatical. He discusses the little known privilege in our tax law that permits your employer to set up a deferred salary leave plan (DSLP). The plan allows you to set aside a portion of your pay each year for a certain period of time and to then take a leave of absence. The money you set aside under the plan is used to pay you during your time off. If the DSLP is set up properly, you won’t face tax on the amounts you set aside until you make withdrawals later during your leave.
In The Sabbatical, a 2009 blog on Canadian Dream: Free at 45, Tim Stobbs explores the pros and cons of taking a sabbatical. He says taking three months off will allow you to take a major trip, build your own cabin or take courses to further your education. But the downside is you may not be able to afford the loss of income or benefits, and there could be career fallout with your boss or co-workers.
If the sabbatical bug has bitten, talk to your manager or human resources department; you may be pleasantly surprised at your options. How to take a break from work by Diana Swift in Canadian Living gives you tips for negotiating time off. She says pick your time, suggest how your workload will be handled in your absence, and tell your boss why you believe you are an asset worth keeping.
Should I Consider Taking a Teaching Sabbatical? Teacher Man asks on Young and Thrifty. His union contract allows him to take a year off at one-third pay after two years in the school division and one-half pay after five years of teaching. He concludes that if he completes his Masters degree during his time off and improves his future earning potential (he is only in his 20s), the investment in time and money could definitely be worthwhile.
Sabbatical Financial Planning 101: How to travel and not get into debt on Aspire Canada has lots of great ideas like: start planning early; continue contributing to your benefits if you can; sell stuff to raise money; draw up a budget; plan to stay with friends/relative where possible during your travels; and, pursue opportunities to work while you are abroad on your sabbatical.
Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.